iPad Air profit margins reportedly range from 45 to 61 percent

Unsurprisingly, iPad storage upgrades appear to be almost pure profit for Apple.

Apple's newest tablet, the iPad Air, sells for anywhere between $499 and $929, and the iPad has been sold in this general price range for about as long as it has been around. A new teardown and cost analysis report by IHS iSuppli (reported by AllThingsD) estimates that the tablet only costs between $274 and $361 to build, delivering profit margins between 45 and 61 percent for Apple.

The tablet's 9.7-inch 2048×1536 display is the single costliest component of the tablet at about $133 ($90 for the display itself and $43 for the touch components). The cost has been driven up by the same changes that have allowed Apple to make the tablet thinner and lighter than the previous Retina iPad: fewer layers of glass are required to enable touch, and fewer LEDs are required to light the screen. iSuppli reports that 36 LEDs are used to light the new display rather than the 84 LED lights used in the earlier Retina iPads. Layers of optical film are used to dissipate the light from those LEDs, reducing the number of lights needed and enabling Apple to shrink the battery.

Other notable components include the A7 chip (estimated to cost about $18), the 1GB of RAM (about $10), and the NAND flash chips (anywhere from $9 to $60, depending on the capacity). Those NAND chips in particular are a huge profit driver since Apple charges $100 to upgrade from 16GB to 32GB, another $100 to move from 32GB to 64GB, and yet another $100 to jump from 64GB to 128GB. Using iSuppli's numbers, this means Apple is charging about $300 for $60 of flash storage.

Finally, Apple is able to fit the hardware necessary to support every extant LTE frequency into one cellular-enabled model, cutting down on the number of hardware variations it has to manufacture—Apple no longer needs to build separate LTE-enabled iPads to support both AT&T and Verizon, for example. It can now make a single SKU and set it up to work with whatever carrier happens to be selling better.

While the hardware is theoretically capable of working on any carrier, some variants do appear to be locked down at least partially. GottaBeMobile has done some limited testing here, buying an AT&T iPad Air and inserting SIMs from Verizon, T-Mobile, and Sprint to see whether the tablet was truly unlocked. Putting a Verizon SIM into the AT&T Air worked fine, but a T-Mobile SIM kept trying to redirect to an activation page and a Sprint SIM prompted a "SIM Not Valid" error with the following message:

The SIM card that you currently have installed in this iPad is from a carrier that is not supported under the activation policy that is currently assigned by the Apple activation server. This is not a hardware issue with the iPad. Please insert another SIM card from a supported carrier or request that this iPad be unlocked by your carrier. Please contact Apple for more information.

It's worth noting that iSuppli does these cost analyses without Apple's input and that its estimates for component costs may not necessarily line up with what Apple is paying. iSuppli's numbers also typically only account for the costs of components and the cost of putting those components together, but not the costs of advertising, research and development, or shipping and selling the tablets. All of those will drive these margins down somewhat.

High profit margins are par for the course at Apple, which reported a gross margin of 37 percent in the fourth quarter of fiscal 2013 (and even-higher 40 percent margins in the same quarter a year ago). Apple relies on hardware sales for the overwhelming majority of its revenue and profits, and these cushy margins also help to subsidize the development of its steadily growing stable of free operating systems and applications. If you've ever wondered why Apple is so reluctant to drop prices even though there's clearly room to do it, that's probably your answer.

I liked the tidbit about the new display technology. It's impressive that the new iPad display has less than half the number of backlights to reduce power consumption. This explains Apple's claim that the smaller Air has the same battery life as its predecessor. I guess I missed this if it was mentioned in iPad reviews.

I'll be honest - after looking at PCs and other mobile devices for song long? I'm thinking a lot of them would make better products if they charged a bit more than running on margins.

Seriously - what if all the potential profit they could make from added bloat was instead tacked onto the price, and they shipped junk free computers? Get a little breathing room, improve some parts, and overall things are better, no?

I'm at the point where I'd like to get a tablet, but I'm thinking that trying to get the cheap ones isn't going to be doing myself any favors because I'm worried the OEM will have cut too many corners or cheaped out. I'm glad Apple is making good quality hardware and not racing to the bottom. As such, I'll probably go for a tablet that is trying to compete against that, and not via being "cheap."

Of course storage upgrades are pure profit. There should be outrage at the price increases that are charged for additional storage.

T,FTFY.

RAM upgrades. CPU upgrades. Video upgrades. They are all disproportionately more expensive than they'd be if you did it yourself. RAM is usually worse than storage considering how inexpensive RAM is. It's always been this way with Dell Gateway HP Alienware etc etc... That trend just carries into the tablet and smartphone era, where the only "upgrade" really is the storage. And unlike with PCs. you gotta spend the money, because those gadgets aren't user upgradeable. Not even if you were an electronics wiz and a master of soldering iron.

"If you've ever wondered why Apple is so reluctant to drop prices even though there's clearly room to do it, that's probably your answer."Or it could just be they like money and are willing to keep taking it as long as people are willing to keep giving it.

I build my own desktop rig, but most people would drop a few hundred dollars on a RAM or SSD upgrade by the manufacturer and think that they found a bargain. Ever checked out how much Lenovo charges for an extra 128G's of solid state? Many consumers probably would never know that storage or RAM is so cheap in the first place.

With cellphones and tablets, even the best tinkers cannot DIY such upgrades. And that is why we feel outraged - Apple is simply charging the same fee across the device board.

We already knew that Apple rips off the fanatics that MUST have the little 'i' in the name of their phone or tablet.

Yeah, you tell all those people who like what you don't like how WRONG they are! You're the arbiter of practicality and taste, Mr. Jackstrap, and your destiny is before you. Look! They're all over the Internet. All those WRONG people. Get posting! Quick! OMG there's another one! You're falling behind!

People usually buy something for a dollar and sell it for two. It is standard in normal industries. From that, all the other expenses are met. I'm not sure why someone would be offended at a BoM at half the retail cost of the product. It just shows how lean Apple is that they can then pay for everything they do with this retail margin. The ridiculous outrage is pretty strange to me.

The cost has been driven up by the same changes that have allowed Apple to make the tablet thinner and lighter than the previous Retina iPad

Has the cost been driven up or driven down? Assuming the $274 price is for the 16GB wifi only model, I'm finding articles from last year putting the BOM at $316. That logic also makes sense whenever you're talking about reducing the number of LEDs and the amount of glass being used.

I was just pricing a Lenovo Thinkpad T430. They wanted $120 for an additional 4GB of RAM (4-->8), and $320 for a 256GB SSD (which is probably last gen). Or I can do it myself for about $190 and 30minutes of my time and save $250.

People usually buy something for a dollar and sell it for two. It is standard in normal industries. From that, all the other expenses are met. I'm not sure why someone would be offended at a BoM at half the retail cost of the product. It just shows how lean Apple is that they can then pay for everything they do with this retail margin. The ridiculous outrage is pretty strange to me.

While I don't agree with the outrage -- if people are paying what Apple is asking, they're doing something right! -- it is unusual in the electronics industry where margins are usually quite thin -- less than 10%.

This is nothing new. Apple has always charged as much as the market will bear and Apple's first, foremost and only responsibility is to deliver profit to shareholders.

For example, I was deconstructing a PowerMac G5 a few days ago, a really old thing. In it was a Radeon 9650 Pro. I'd never heard of it, so I looked it up.

The very same card, same components, same colour PCB - labelled "Radeon 9600 Pro Mac and PC Edition", was sold by ATI for $195 on release. Apple sold it for $599.95 and offered a shorter warranty. That's $400 extra for the privilege of a less reliable card!

I think there are quite a few companies that are more than happy about Apple's margins. Because if Apple would sell with the margins that others are happy with, those companies could just pack up because nobody would buy their products anymore.

Still, I'm often wondering if Apple is wise not to use their fat profits (and savings) to expand market share by lowering prices. If Apple would sell the iPhone 5c for $349 unlocked and the iPad mini Retina for $299 Apple's market share would explode, the stock prices would rise and the iOS ecosystem would soar. I mean, what's the point anymore in adding to that $150B pile of money they've got?

I really can't help thinking back at Steve Jobs who once said this about the old Apple:

"What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share."

Obscene profit margins on storage upgrades is par for the course with tablets and phones. Many manufacturers do it - even Google with the Nexus line. It's why Android devices frequently don't support microSD cards. Instead, market a lower price with fewer features (no expandable storage) and charge an arm and a leg for upgrades.

This is nothing new. Apple has always charged as much as the market will bear and Apple's first, foremost and only responsibility is to deliver profit to shareholders.

For example, I was deconstructing a PowerMac G5 a few days ago, a really old thing. In it was a Radeon 9650 Pro. I'd never heard of it, so I looked it up.

The very same card, same components, same colour PCB - labelled "Radeon 9600 Pro Mac and PC Edition", was sold by ATI for $195 on release. Apple sold it for $599.95 and offered a shorter warranty. That's $400 extra for the privilege of a less reliable card!

Edit: And the card? A slightly underclocked Radeon 9600.

Yea. I think it had more to do with Nvidia and ATI than Apple though. Nvidia discovered they could make a lot of money selling an "Apple" version of card which was different merely in the firmware flash (and this was just to prevent using a non-apple version) and ATI just shrugged and went along with it.You used to be able to use a Voodoo on both Mac and PC no problem so long as you had the right extension or drivers. There was a pretty common business of people selling reflashed PC versions of cards to mac users on eBay too which was far cheaper.

I think there are quite a few companies that are more than happy about Apple's margins. Because if Apple would sell with the margins that others are happy with, those companies could just pack up because nobody would buy their products anymore.

Still, I'm often wondering if Apple is wise not to use their fat profits (and savings) to expand market share by lowering prices. If Apple would sell the iPhone 5c for $349 unlocked and the iPad mini Retina for $299 Apple's market share would explode, the stock prices would rise and the iOS ecosystem would soar. I mean, what's the point anymore in adding to that $150B pile of money they've got?

I really can't help thinking back at Steve Jobs who once said this about the old Apple:

"What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share."

.., and I wouldn't be surprised if history repeats itself. One of the main advantages of the iPad is the app selection and quality. When I see devices like the the Nexus 7 and the prices that Apple is going to charge for the iPad mini, I don't really see how Apple is going to keep the marketshare (and as a result developer attention and app selection / quality) advantage.

Obscene profit margins on storage upgrades is par for the course with tablets and phones. Many manufacturers do it - even Google with the Nexus line. It's why Android devices frequently don't support microSD cards. Instead, market a lower price with fewer features (no expandable storage) and charge an arm and a leg for upgrades.

Going from 16 --> 32 GB is 40€ for the Nexus 7. Compared to the iPad's 100€, that's a deal.

I've always wondered why Apple's iPads didn't have a µSD card slot (one of several "missing features" I've been waiting for them to implement, which would motivate me to purchase my family's first iPad; the other major missing feature being a built-in software Dvorak keyboard for non-jailbroken iOS devices). Perhaps now, we've guessed why they don't include µSD upgradability!Google Nexus for us then?

EDIT: Why the down-votes? I have no agenda (religious or otherwise). I'm just honestly wondering which tablet we should buy, and which software ecosystem would be best for us...

Nexus doesn't have microSD either. If you want expandable memory, you need a third-party Android device.

Thank you for helping answer my question. Perhaps I should take a more serious look at the Samsung Galaxy Note series... Or make a decision based on other considerations... Or continue with "wait and see", until genuine competition forces Apple to rethink their pricing policies.

I'm probably going to buy the wife a retina mini for xmas, 32G. I'm gritting my teeth about $100 for 16G of flash, but I don't think the 16G unit really makes sense; when it's all said and done, the gift will actually cost me either $800 or $900 ...

But since I've been thinking about it for a couple of weeks: The 32G for $500 is the real product, with upgrades to 64 and 128 priced nicely for apple but at least sanely for customers. The 16G for $400 is a marketing loss leader. They will shave their margins down lower than they'd like, to be able to advertise "starting at $400", not actually lose any money, and get a little incremental business from fools who won't or can't spend the extra $100 to avoid a crippled product.

Many years ago I worked in a big company's disk division. They would sell you a disk with a certain capacity that was jumpered so the firmware would only recognize half of it, for a reduced price, just to make the sale. Not quite the same here, they could still sell the upgrade. But the marketing thinking is similar. You need a low end in the lineup.

I liked the tidbit about the new display technology. It's impressive that the new iPad display has less than half the number of backlights to reduce power consumption. This explains Apple's claim that the smaller Air has the same battery life as its predecessor. I guess I missed this if it was mentioned in iPad reviews.

DisplayMate reported this week that the iPad Air's display is IGZO, and IGZO displays let more light from the backlight through to the viewer, which means for the same apparent brightness, they can use less LEDs. I haven't seen it reported anywhere else, but its a big deal - reducing power draw for the display from 7W to 4.8W (31% reduction). This means the Air has to dissipate less heat as well as consume less power vs the earlier generation iPads.

Obscene profit margins on storage upgrades is par for the course with tablets and phones. Many manufacturers do it - even Google with the Nexus line. It's why Android devices frequently don't support microSD cards. Instead, market a lower price with fewer features (no expandable storage) and charge an arm and a leg for upgrades.

Going from 16 --> 32 GB is 40€ for the Nexus 7. Compared to the iPad's 100€, that's a deal.

Is 60 Euros worth the pain and suicide provoking feelings caused by using Android?

Andrew Cunningham / Andrew has a B.A. in Classics from Kenyon College and has over five years of experience in IT. His work has appeared on Charge Shot!!! and AnandTech, and he records a weekly book podcast called Overdue.